Rajesh Singhvi & Sons (HUF), CHENNAI V. ITO Non Corporate Ward 6(1), CHENNAI

ITA 3076/CHNY/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7471 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 14-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN IRS
• Assessee Lawyers: MRS B JAISHEILA
• Keywords: Share purchase agreement; Principle of natural justice
• Section: 133A

Judgement Text

, (SMC) , IN THE INCOME TAX APPELLATE TRIBUNAL, A (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO. 3076/CHNY/2017 / ASSESSMENT YEAR : 2014-2015. RAJESH SINGHVI & SONS (HUF) NO.156, MINT STREET, SOWCARPET, CHENNAI 600 079. [PAN AAAHR 6894P] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 6(1) CHENNAI. ( !' / APPELLANT) ( #$ !' /RESPONDENT) / APPELLANT BY : MRS. B.JAISHEILA, C.A. /RESPONDENT BY : MR. B. SAGADEVAN, IRS, JCIT. /DATE OF HEARING : 03-07-2018 !' /DATE OF PRONOUNCEMENT : 04-07-2018 % / O R D E R IN THIS APPEAL FILED BY THE ASSESSEE DIRECTED AGAI NST AN ORDER DATED 03.10.2017 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-5, CHENNAI, IT IS AGGRIEVED ON DENIAL OF EXEMPTION CL AIMED BY IT U/S.10(38) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) FOR THE LONG TERM CAPITAL GAINS ON SALE OF CERTAIN SHARES. ITA NO.3076 /CHNY/2017. :- 2 -: 2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSES SEE HAD EARNED E25,52,680/- ON SALE OF 25,000 EQUITY SHAR ES OF M/S.CRESANDA COMMERCIAL SOLUTIONS LTD AND 40,000 EQUITY SHARES O F M/S.SURABHI CHEM & INVESTMENT LTD. AS PER THE LD. AUTHORISED R EPRESENTATIVE, ASSESSEE HAD PURCHASED THESE SHARES IN 2007, 2009, 2010 AND 2012 AND HELD SUCH SHARES AS INVESTMENT. LD. AUTHORISE D REPRESENTATIVE, SUBMITTED THAT THE GAINS ARISING FROM SALE OF THESE SHARES WHICH WERE HELD FOR MORE THAN TWELVE MONTHS, WERE NOT ALLOWE D EXEMPTION U/S.10(38) OF THE ACT. ACCORDING TO HIM, WHOLE OF THE CONSIDERATION RECEIVED ON SALE WAS TREATED AS INCOME UNDER THE HE AD INCOME FROM OTHER SOURCES. AS PER THE LD. AUTHORISED REPRESE NTATIVE, LOWER AUTHORITIES DISBELIEVED THE PURCHASE AND SALE OF TH E SHARES OF M/S.CRESANDA COMMERCIAL SOLUTIONS LTD RELYING ON TH E STATEMENTS OF SHRI. DEEPAK PATWARI, SHRI. ANUP MAHESWARI, SHRI . BIKAS SUREKHA, SHRI. ANIL KHEMKA, SHRI. AMIT SARAOGI, SHRI. SAURAJ JHUNJHUNWALA, MR. SAJENDRA MOOKIM, AND SHRI. SANJEEV KUMAR AGARWAL. F OR DISBELIEVING THE TRANSACTIONS RELATING TO M/S.CRESANDA COMMERCIA L SOLUTIONS LTD, ACCORDING TO LD. AUTHORISED REPRESENTATIVE, LOWER A UTHORITIES BELIEVED THE STATEMENTS GIVEN BY VARIOUS PERSONS PURSUANT TO A SURVEY UNDER SECTION 133A OF THE ACT CONDUCTED IN THE PREMISES O F ONE M/S. SIKARIA SHARE & STOCK BROKING SERVICES PVT. LTD. FURTHER, ACCORDING TO LD. AUTHORISED REPRESENTATIVE, RECORDS IMPOUNDED DURING THIS SURVEY WERE ITA NO.3076 /CHNY/2017. :- 3 -: ALSO CONSIDERED BY THE LD. ASSESSING OFFICER. HO WEVER, AS PER THE LD. AUTHORISED REPRESENTATIVE, NONE OF THESE STATEMENTS AND RECORDS WERE GIVEN TO THE ASSESSEE NOR SUCH PERSONS MADE AVAILAB LE FOR A CROSS EXAMINATION. CONTENTION OF THE LD. AUTHORISED REPR ESENTATIVE WAS THAT STATEMENTS RECORDED BEHIND THE BACK OF THE ASSESSEE COULD NOT HAVE BEEN RELIED ON BY THE REVENUE FOR FASTENING A TAX L IABILITY ON THE ASSESSEE. AS PER THE LD. AUTHORISED REPRESENTATIVE , LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER TREATING THE TRANSACTIONS TO BE THAT OF PEN NY STOCK COMPANIES RELYING ON THE REPORTS OF INVESTIGATION WING OF INC OME TAX DEPARTMENT, KOLKATA. 3. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE PLACIN G RELIANCE ON A DECISION OF A CO-ORDINATE BENCH IN THE CASE OF HEERACHAND KANUNGA VS. ITO, (ITA NOS.2786 & 2787/CHNY/2017 , DATED 03.05.2018) SUBMITTED THAT THE ISSUE MIGHT BE REQ UIRED TO BE REMITTED BACK TO THE LD. ASSESSING OFFICER, SO THA T DUE PROCESS OF LAW IS FOLLOWED. 4. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. CLAIM OF THE ASSES SEE FOR EXEMPTION U/S.10(38) OF THE ACT, ON ALLEGED LONG TERM CAPI TAL GAINS ARISING ON SALE OF SHARES OF M/S.CRESANDA COMMERCIAL SOLUTION S LTD AND ITA NO.3076 /CHNY/2017. :- 4 -: M/S. SURABHI CHEM & INVESTMENT LTD WERE DISALLOWED BY THE LD. ASSESSING OFFICER CONSIDERING THESE TO BE PENNY STO CK COMPANIES AND ALLEGING ASSESSEES FAILURE TO BRING EVIDENCE WI TH REGARD TO THE GENUINENESS OF THE TRANSACTIONS. IT IS NOT DISPUTED BY THE LD. DEPARTMENTAL REPRESENTATIVE THAT REVENUE HAD RELIE D ON STATEMENTS RECORDED DURING A SURVEY U/S.133A OF THE ACT IN ONE M/S. SIKARIA SHARE & STOCK BROKING SERVICES PVT. LTD. FOR DISBELIEVING THE SALE OF SHARES IN M/S.CRESANDA COMMERCIAL SOLUTIONS LTD. THE ASSESSM ENT ORDER ALSO REFERS TO STATEMENTS OF MR. DEEPAK PATWARI AND MR . ANUP MAHESWARI, AT PARA 4.4.2, STATEMENTS OF MR. BIKAS SUREKA, MR . ANIL KHEMKA, MR. AMIT SARAOGI, MR. SAURAJ JHUNJHUNWALA, MR. SAJENDRA MOOKIM AT PAGE 7 AND THAT OF MR. SANJEEV KUMAR AGARWAL AT PAGE 8. THESE WERE ALL RELIED ON BY THE LD. ASSESSING OFFICER FOR DISBELIE VING THE CLAIM OF SALE IN THE SHARES OF M/S. SURABHI CHEMICALS AND INVESTM ENTS LTD. IT IS ALSO NOT DISPUTED THAT STATEMENTS RECORDED FROM TH ESE PERSONS AND RECORDS RELIED ON BY THE REVENUE FOR DISBELIEVING T HE CLAIM OF THE SALE OF SHARES, WERE NOT PUT TO THE ASSESSEE. UNDISPUTE DLY, THE SALE OF SHARES WERE THROUGH RECOGNIZED STOCK EXCHANGE AND T HROUGH A RECOGNIZED STOCK BROKER. IN A SIMILAR CASE OF HEERACHAND KAUNGA (SUPRA) DECIDED BY A CO-ORDINATE BENCH, WHERE ALSO SALE O F SHARES IN WHAT IS CALLED AS PENNY STOCK COMPANIES WERE DISBE LIEVED BY THE ITA NO.3076 /CHNY/2017. :- 5 -: REVENUE FOR ALMOST SIMILAR REASONS, THIS TRIBUNAL H AD HELD AS UNDER AT PARA 9 TO 12 OF ITS ORDER DATED 03.05.2018. 9. A PERUSAL OF THE FACTS IN THE PRESENT CASE ADMIT TEDLY GIVEN ROOM FOR SUSPICION. HOWEVER, ASSESSMENTS ARE NOT TO BE DONE ON THE BASIS OF MERE SUSPICION. IT H AS TO BE SUPPORTED BY FACTS AND THE FACTS ARE UNFORTUNATE LY NOT FORTHCOMING IN THE ASSESSMENT ORDER, IN THE ORDER O F THE LD.CIT(A) NOR FROM THE SIDE OF THE ASSESSEE. THE M AIN FOUNDATION OF THE ASSESSMENT IN THE PRESENT CASE IS THE STATEMENT OF ONE SHRI ASHOK KUMAR KAYAN WHO HAS ADMITTED TO HAVE PROVIDED BOGUS LONG TERM CAPITAL GAINS TO HIS CLIENTS. THE SAID SHRI ASHOK KUMAR KA YAN ALSO ALLEGEDLY SEEMS TO HAVE PROVIDED THE ASSESSEE S NAME AND PAN AS ONE OF THE BENEFICIARIES. HOWEVER, THIS STATEMENT GIVEN BY SHRI ASHOK KUMAR KAYAN CANN OT BE THE FOUNDATION FOR THE PURPOSE OF ASSESSMENT IN SO FAR AS SHRI ASHOK KUMAR KAYAN HAS NOT BEEN PROVIDED TO THE ASSESSEE FOR CROSS-EXAMINATION. IN THE ABSENCE OF OPPORTUNITY OF CROSS-EXAMINATION, THE STATEMENT REM AINS MERE INFORMATION AND SUCH INFORMATION CANNOT BE FOUNDATION FOR ASSESSMENT. 10. ADMITTEDLY, THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED 15000 SHARES FROM M/S.BPL @ RS.20/- PER SHARE TOTALING INTO RS.3,00,000/-. THE ASSESSEE CLA IMS TO HAVE PAID CASH FOR THE PURCHASE OF THESE SHARES. T HE PRIMARY QUESTION WOULD BE AS TO WHERE THE PURCHASE WAS DONE? IF THE PURCHASE HAS BEEN DONE IN KOLKATA, HOW WAS THE CASH TRANSFERRED? WHEN DID THE ASSESSEE RECEIVED THE SHARE CERTIFICATES AND THE SHARE TRANS FER FORMS? HOW DID THE ASSESSEE OVERCOME THE PROVISION S OF SEC.40A(3)? WAS THERE ADEQUATE CASH AVAILABILIT Y IN THE BOOKS OF THE ASSESSEE ON 24.04.2008? DID THE ASSESSEE TRAVELLED TO KOLKATA? HOW WAS THE TRANSAC TION DONE? WHO APPLIED FOR THE DEMATING OF THE SHARES? WHEN WERE THEY DEMATED? WHEN WERE THE SHARES TRANSFERRED TO THE DEMAT ACCOUNT OF THE ASSESSEE? T O WHOM WERE THE SHARES SOLD DURING THE ASSESSMENT YEARS 2010-11 & 2011-12? WHEN WERE THE CHEQUES RECEIVED BY THE ASSESSEE? FROM WHOM DID THE ASSESSEE RECEIVED THE CHEQUES? WAS THERE ANY CASH DEPOSIT IMMEDIATELY PRIOR TO THE ISSUING OF THE CHE QUE FROM THE BANK ACCOUNT OF THE PURCHASER OF THE SHARE S OF THE ASSESSEE? ITA NO.3076 /CHNY/2017. :- 6 -: 11. A PERUSAL OF THE ASSESSMENT ORDER AT PARA NO.7. 1 SHOWS THAT IN THE WRITTEN SUBMISSIONS, THE ASSESSEE STATES THAT HE HAS PURCHASED 15000 SHARES OF M/S.BP L FROM M/S.ABPL, KOLKATA. HOWEVER, IN PARA NO.8.3, I T IS MENTIONED THAT THE ASSESSEE IN GOOD FAITH HAS PURCH ASED THE SHARES OF M/S.BPL FROM A SUB-BROKER IN HIS FRIE NDS CIRCLE. WHAT IS THE TRUE NATURE OF THE TRANSACTION ? FROM WHOM DID THE ASSESSEE ACTUALLY PURCHASE THE SHARES? DID THE ASSESSEE TAKE POSSESSION OF THE SHARES IN I TS PHYSICAL FORM? IN PARA NO.8.1 OF THE ASSESSMENT OR DER, IT IS MENTIONED THAT THE ASSESSEE IS AN INVESTOR AN D HAS BEEN REGULARLY TRADING IN SHARES. IF THIS IS SO, D OES THE DEMAT ACCOUNT SHOW SUCH TRANSACTIONS BEING DONE BY THE ASSESSEE OR IS THIS THE ONLY ONE OF TRANSACTION . THUS, CLEARLY THE FACTS REQUIRED FOR ADJUDICATING THE APP EALS ARE NOT FORTHCOMING. THERE IS NO EVIDENCE WHATSOEVER T O SHOW THAT THE ASSESSEE HAS HELD THE SHARES FOR MORE THAN 12 MONTHS. THIS IS BECAUSE ASSUMING THAT THE DEMAT HAS BEEN DONE AND THE SHARES OF M/S.BPL HAS COME INTO THE ASSESSEES DEMAT ACCOUNT AND HAS IMMEDIATELY FLOWN OUT. THEN THE FACTUM OF THE POSSESSION OF THE SHARES FOR MORE THAN 12 MONTHS HA VE TO BE PROVED BY THE ASSESSEE. THIS IS ALSO NOT FORTHCOMING. IN REPLY TO A SPECIFIC QUERY, AS THE DATE OF THE DEMAT OF SHARES, IT WAS SUBMITTED BY THE LD.AR THAT THE DEMAT WAS DONE ON VARIOUS DATES. THEN THE QUESTION RISES AS TO WHY THERE IS SO MUCH OF DIFFER ENCE IN THE DATES OF DEMATING WHEN 15000 SHARES HAVE BEEN PURCHASED TOGETHER ON 24.04.2008. NO DETAILS IN RE SPECT OF M/S.BPL COMPANY IS KNOWN, WHAT IS THE PRODUCT OF THE COMPANY WHICH HAD LEAD TO THE SHARE VALUE OF THE COMPANY TO GO UP FROM RS.20/- TO RS.352/- IN A PERI OD OF TWO YEARS. THIS WOULD CLEARLY BE A CASE WHERE THE S HARE VALUE OF THE COMPANY WAS HITTING THE CIRCUIT BREAKE R OF THE STOCK EXCHANGE ON A DAILY BASIS AND OBVIOUSLY I T WOULD HAVE DRAWN ATTENTION. THIS BEING SO, AS THE FACTS ARE NOT COMING OUT OF THE ASSESSMENT ORDER NOR THE ORDER OF THE LD.CIT(A) NOR FROM THE SIDE OF THE ASS ESSEE, WE ARE OF THE VIEW THAT THE ISSUES IN THIS APPEAL M UST BE RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CASE AND WE DO SO. 12. THE STATEMENT RECORDED BY THE REVENUE FROM SHRI ASHOK KUMAR KAYAN CANNOT BE USED AS AN EVIDENCE AGAINST THE ASSESSEE IN SO FAR AS THE STATEMENT HAS NOT BEEN GIVEN TO THE ASSESSEE NOR HAS SHRI ASHOK KUMAR KAYAN BEEN PROVIDED TO THE ASSESSEE FOR CROSS- EXAMINATION. HOWEVER, THE ASSESSEE SHALL PROVE THE ITA NO.3076 /CHNY/2017. :- 7 -: TRANSACTION OF THE LONG TERM CAPITAL GAINS IN RESPE CT OF WHICH THE ASSESSEE HAS CLAIMED THE EXEMPTION U/S.10(38) BY PROVIDING ALL SUCH EVIDENCES AS REQUI RED BY THE AO TO SUBSTANTIATE THE CLAIM AS ALSO BY PRODUCI NG THE PERSONS THROUGH WHOM THE ASSESSEE HAS UNDERTAKEN TH E TRANSACTION OF THE PURCHASE AND SALE OF THE SHARES WHICH WOULD INCLUDE THE SUB-BROKER, FRIEND AND THE BROKER THROUGH WHOM THE TRANSACTION HAS BEEN DONE, BEFORE THE AO FOR EXAMINATION. IN LINE WITH THE ABOVE, I AM OF THE OPINION THAT QU ESTION REGARDING GENUINENESS OF THE CLAIM OF LONG TERM CAPITAL GAINS REQUIRES TO BE RESTORED TO THE LD. ASSESSING OFFICER FOR RECONSIDE RATION AFTER GRANTING ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CASE. REVENUE HAS TO FURNISH TO THE ASSESSEE ALL THE STATEMENTS RELI ED ON BY THEM. USEFUL REFERENCE MAY BE MADE TO THE LAW LAID DOWN B Y HONBLE APEX COURT IN THE CASE OF CIT VS. SUNITA DHADDA, SLP (CIVIL ) NO.9432/2018, DATED 28.03.2018 , WHILE AFFIRMING A JUDGMENT OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS.SMT. SUNITA DHADDA , WHERE THE IMPORTANCE OF PROVIDING AN OPPORTUNITY TO CROSS EXAMINE THE WITNESS HAS BEEN STRESSED. THEIR LORDS HIP HELD THAT THIS WAS AN IMPORTANT CONSTITUENT OF NATURAL JUSTICE. ONLY AFTER ALL THE STEPS REQUIRED UNDER LAW IS COMPLETE, IT CAN BE AS CERTAINED WHETHER CLAIM OF CAPITAL GAINS WAS BOGUS OR NOT. I THEREFOR E SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE ISSUE BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. ITA NO.3076 /CHNY/2017. :- 8 -: 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 4TH DAY OF JUL Y, 2018, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED:4TH JULY, 2018 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,- / CIT(A) 5. )./ 0 / DR 2. / RESPONDENT 4. + / CIT 6. /12 / GF